2.4 - National income, output and expenditure Flashcards
What is national income?
The total value of all goods and services produced by a country in a year.
What is the circular flow of income?
Consumer expenditure
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Factors of production
________________>__________________
^ l
^ l
Households Firms
l ^
l ^
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Goods and services
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Wages, rent, dividends
What is the difference between wealth and income?
Wealth - a stock of assets.
income - a flow of money.
What is the correlation between wealth and income?
Positive.
What are injections?
Additions to the circular flow of income.
What are withdrawls?
Leakages out of the circular flow of income.
What are the 3 types of injections?
Investment.
Government expenditure.
Exports.
What are the 3 types of withdrawals?
Savings.
Taxes.
Imports.
What is the multiplier?
Process by which a change in an injection causes a more than proportionate change in national income.
What is the multiplier equation?
Change in real GDP / change in injection
What is the impact of the multiplier on the economy?
Causes an injection to have magnified effect on GDP.
What would causes a multiplier to be relatively low?
A high marginal propensity to import.
What is the the marginal propensity to consume (MPC)?
The proportion of an increase
income that is spent.
What is the equation for MPC?
Change in consumption / change in income
How can the multiplier be calculated using MPC?
1 / 1-MPC
What is the marginal propensity to save (MPS)?
The proportion of an increase in income that is not spent.
What is the equation for MPS?
Change in saving / change in income
How can the multiplier be calculated using MPS?
1 / 1-MPS
What is the marginal propensity to tax (MPT)?
The proportion of an increase in income that is taxed.
What is the equation for MPT?
Change in tax / change in income
What is the marginal propensity to import (MPM)?
The proportion of an increase in income that is spent on imports.
What is the equation for MPM?
Change in imports / change in income
How can the multiplier be calculated using marginal propensity to withdrawal (MPW)?
1 / MPW
Explain the multiplier process.
The process begins with an injection into the economy.
This spending forms the income of other people.
Some of this income is spent and some leaks out the circular flow.
Money spent makes up new incomes.
This process continues until the full effects have fed through the economy.
